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GAO-12-371R:
United States Government Accountability Office:
Washington, DC 20548:
January 31, 2012:
The Honorable Orrin G. Hatch:
Ranking Member:
Committee on Finance:
United States Senate:
Subject: Drug Pricing: Research on Savings from Generic Drug Use:
Dear Senator Hatch:
Prescription drug spending in the United States reached $307 billion
in 2010--an increase of $135 billion since 2001--[Footnote 1]and
comprised approximately 12 percent of all health care spending in the
country. Until the early 2000s, drug spending was one of the fastest
growing components of health care spending. However, since that time,
the rate of increase has generally declined each year, attributable in
part to the greater use of generic drugs, which are copies of approved
brand-name drugs.[Footnote 2] Generic versions of brand-name drugs
become available to consumers when brand-name drugs' patents and
periods of market exclusivity expire and generic manufacturers obtain
approval to market their drug.[Footnote 3] The competition that brand-
name drugs face from generic equivalents is associated with lower
overall drug prices, particularly as the number of generic
manufacturers grows and price competition among them increases.
[Footnote 4] On average, the retail price of a generic drug is 75
percent lower than the retail price of a brand-name drug.[Footnote 5]
Increased use of generic drugs can partly be attributed to the
regulatory framework that was established in the Drug Price
Competition and Patent Term Restoration Act of 1984, commonly known as
the Hatch-Waxman Act.[Footnote 6] The Hatch-Waxman Act facilitated
earlier, and less costly, market entry of generic drugs, while
protecting the patent rights of brand-name drug manufacturers, to
encourage continued investment in research and development. When the
act was enacted in 1984, the generic utilization rate--which is the
share of all drugs dispensed that are generic--was about 19 percent.
Today it is about 78 percent for drugs dispensed in retail settings,
such as independent, chain, and mail-order pharmacies, as well as in
long-term care facilities.[Footnote 7] The generic utilization rate
is expected to continue to grow over the next few years as a number of
blockbuster drugs[Footnote 8] come off patent through 2015.
While the Hatch-Waxman Act has helped to increase the number of
generic alternatives to brand-name drugs, other factors influence
whether providers and consumers use generic drugs. For example, third-
party payers--including private health insurance plans and public
programs such as Medicare--[Footnote 9]use strategies such as tiered
copayments to encourage the use of less expensive drugs within a
therapeutic class, which are often generics.[Footnote 10] Also,
perceptions of the safety and efficacy of generic drugs may affect
their use. Thus, use of generic drugs--and the savings realized--can
vary by payer as well as across therapeutic classes. You asked us to
identify research completed on estimates of cost savings from the use
of generic drugs in the United States. This report summarizes the
findings of peer-reviewed articles, government reports, and studies by
national organizations, including trade and nonprofit organizations,
on this topic.[Footnote 11]
To identify research completed on estimates of cost savings from the
use of generic drugs in the United States, we conducted a structured
literature review, which resulted in 30 articles we determined to be
relevant to our objective (see the enclosure for a list of the
articles we identified). To conduct this review, we searched seven
reference databases that included peer-reviewed journal articles and
other periodicals to capture articles published on or between January
2000 and October 24, 2011.[Footnote 12] We used a combination of
search terms related to cost savings from the use of generic drugs,
including synonyms for generic drugs, monetary terms, and modifiers
(see the enclosure for a complete list of the search terms). We
determined whether an article was relevant to our objective based on
whether it included an empirical analysis that produced estimates of
cost savings from the use of generic drugs. We excluded articles that:
(1) were not focused on the United States; (2) were news articles,
opinion pieces, or PowerPoint presentations; or (3) did not describe a
methodology for calculating the savings estimates. We also excluded
articles that: (1) included estimates of cost savings involving the
use of generic drugs, but it was unclear whether other factors also
contributed to the savings;[Footnote 13] (2) analyzed differences in
the prices of brand and generic drugs, but did not look at cost
savings for a given population; or (3) focused on estimates of cost
savings from generic versions of biologics.[Footnote 14] To supplement
this information, we searched government websites, such as the
Department of Health and Human Services' website, for studies that met
our criteria. We also searched the websites of national organizations,
including those of trade groups, such as the Generic Pharmaceutical
Association (GPhA), and nonprofits, such as the Kaiser Family
Foundation. In addition, we searched the Nexis database for trade
articles discussing cost savings from generic drugs using the same
search terms as our review of reference databases. To help ensure our
searches captured relevant articles, we reviewed the bibliographies of
the studies we identified as relevant to identify other potentially
relevant articles. We also interviewed officials at the Congressional
Budget Office (CBO), GPhA, and IMS Health[Footnote 15] about prior
work on estimates of cost savings from the use of generic drugs, and
included any additional reports the officials identified if they met
our criteria. We analyzed the 30 articles identified through our
literature review to group them by topic covered and summarized key
methodological similarities and differences within and among the
groups. However, we did not independently assess the methodologies of
the articles, including the reliability of data used.
We conducted our work from October 2011 to January 2012 in accordance
with all sections of GAO's Quality Assurance Framework that are
relevant to our objectives. The framework requires that we plan and
perform the engagement to obtain sufficient and appropriate evidence
to meet our stated objectives and to discuss any limitations in our
work. We believe that the information and data obtained, and the
analysis conducted, provide a reasonable basis for any findings and
conclusions in this product. Because we did not evaluate the policies
or operations of any federal agency to develop the information
presented in this report, we did not seek comments from any agency.
Results in Brief:
Our review identified articles that used varying approaches to
estimate the savings associated with generic drug use in the United
States. One group of studies estimated the savings in reduced drug
costs that have accrued from the use of generics. For example, a
series of studies estimated the total savings that have accrued to the
U.S. health care system from substituting generic drugs for their
brand-name counterparts, and found that from 1999 through 2010 doing
so saved more than $1 trillion. A second group of studies estimated
the potential to save more on drugs through greater use of generics.
For example, one study assessed the potential for additional savings
within the Medicare Part D program--which provides outpatient
prescription drug coverage for Medicare--and found that if generic
drugs had always been substituted for the brand-name drugs studied,
about $900 million would have been saved in 2007. A third group of
studies estimated the effect on health care costs of using generic
versions of certain types of drugs where questions had generally been
raised about whether substituting generic drugs for brand-name drugs
was medically appropriate. Unlike the other two groups which focused
on savings on drugs only, these studies compared savings from the
lower cost of generic drugs to other health care costs that could
accrue from their use, such as increased hospitalizations. The studies
had mixed results regarding the effect of using these generics in that
some found they raised health care costs, while others found they led
to cost savings.
Background:
In order to be approved by the U.S. Food and Drug Administration
(FDA), generic drugs must be the same as their brand-name counterparts
in the following ways: they must have the same active ingredient(s);
the same route of administration, for example, a drug that is taken
orally versus by injection; the same dosage form, for example, a pill
versus a syrup; the same strength; and the same intended use.[Footnote
16] Generic drugs also must meet FDA manufacturing standards and be
bioequivalent, meaning that the rate and extent of absorption of
generic drugs into the bloodstream do not show a statistically
significant difference from their brand-name counterparts. However,
bioequivalence standards set by FDA allow for variation between brand
and generic drugs that is considered small enough for the drugs to
still be considered interchangeable. Such variation may occur because,
for example, generic drugs may have different inactive ingredients,
such as binding materials, dyes, preservatives, or flavoring agents
compared to brand-name drugs.
Spending on Prescription Drugs:
Prescription drug spending consists of payments from third-party
payers, including private health insurance plans and public programs,
and of consumers' out-of-pocket costs.[Footnote 17] Most--
approximately 76 percent--of drug spending in the United States is for
drugs dispensed in retail settings and long-term care facilities, with
drugs dispensed in retail settings accounting for almost all of these
drugs. In 2010, private health insurance plans paid $117 billion or
45.2 percent of the $259.1 billion spent on retail prescription drugs.
[Footnote 18] Public programs paid $93.3 billion, accounting for 36
percent, and consumers paid $48.8 billion out of pocket, accounting
for 18.8 percent of the spending (see figure 1).
Figure 1: Spending on Prescription Drugs in Retail Settings by Payer
Type, 2010:
[Refer to PDF for image: pie-chart]
Private health insurance programs: 45%;
Public programs: 36%;
Consumers: 19%.
Source: GAO analysis of the Centers for Medicare & Medicaid Services'
National Health Expenditures Accounts.
Note: Prescription drugs can be dispensed in retail settings, such as
independent, chain, and mail-order pharmacies, as well as in
institutional settings, such as long-term-care facilities, hospitals,
and clinics. Data on drug spending by payer type were not publicly
available for drugs dispensed in institutional settings. However,
drugs dispensed in retail settings and long-term care facilities
comprise approximately 76 percent of all prescription drug spending in
the United States, with drugs dispensed in retail settings accounting
for almost all of these drugs.
[End of figure]
Within public programs, federal programs accounted for 90 percent of
all spending on prescription drugs in retail settings, with state and
local spending on programs such as Medicaid accounting for the rest.
[Footnote 19] Medicare was by far the biggest federal payer,
representing 70.8 percent of all federal spending on prescription
drugs. (See table 1 for more information on federal spending on
prescription drugs.)
Table 1: Federal Spending on Prescription Drugs in Retail Settings,
2010:
Payer: Medicare;
Total spending: $59.5 billion;
Percent of federal: 70.8%.
Payer: Medicaid[A];
Total spending: $14.8 billion;
Percent of federal: 17.6%.
Payer: Department of Defense;
Total spending: $6.1 billion;
Percent of federal: 7.3%.
Payer: Department of Veterans Affairs;
Total spending: $2.6 billion;
Percent of federal: 3.1%.
Payer: Other federal spending[B];
Total spending: $1.0 billion;
Percent of federal: 1.2%.
Payer: Total;
Total spending: $84 billion;
Percent of federal: 100%.
Source: GAO analysis of the Centers for Medicare & Medicaid Services'
National Health Expenditure Accounts.
Note: Prescription drugs can be dispensed in retail settings, such as
independent, chain, and mail-order pharmacies, as well as in
institutional settings, such as long-term-care facilities, hospitals,
and clinics. Data on drug spending by payer type were not publicly
available for drugs dispensed in institutional settings. However,
drugs dispensed in retail settings and long-term care facilities
comprise approximately 76 percent of all prescription drug spending in
the United States, with drugs dispensed in retail settings accounting
for almost all of these drugs.
[A] Includes federal spending through Medicaid and the Children's
Health Insurance Program.
[B] Includes federal spending by the Indian Health Service and through
the Maternal and Child Health program. Also, includes spending through
workers compensation programs, which are paid for with federal, state,
and local funds.
[End of table]
While private health insurance plans accounted for the largest share
of retail drug spending in 2010, the share paid for by public programs
has grown in recent years--increasing nearly 10 percent since 2005.
The increase in public programs' share of spending can largely be
attributed to the implementation of Medicare Part D in 2006. Going
forward, a number of factors may affect the growth of prescription
drug spending and the distribution of this spending across payers. The
implementation of various provisions of the Patient Protection and
Affordable Care Act, as amended (PPACA), may affect prescription drug
coverage, use, and prices.[Footnote 20] Additionally, market factors,
such as the upcoming loss of patent protection for certain blockbuster
drugs, as well as the cost of new brand-name drugs entering the
market, could also affect spending.
Factors that Affect Generic Drug Use:
According to a report by the Department of Health and Human Services,
the availability of generic drugs is the most important factor
affecting generic drug use.[Footnote 21] FDA approval is required
before drugs can be marketed for sale in the United States, though
this process differs for brand-name and generic drugs. To obtain FDA's
approval for a new, brand-name drug,[Footnote 22] manufacturers must
submit a new drug application (NDA) containing data on the safety and
effectiveness of the drug as determined through clinical trials and
other studies.[Footnote 23] Prior to enactment of the Hatch-Waxman
Act, the same types of studies were required for generic drugs as for
brand-name drugs. However, to facilitate generic entry into the
market, the act established changes to the FDA approval process for
generic drugs.[Footnote 24] Specifically, it included provisions by
which manufacturers of generic drugs may submit an abbreviated new
drug application (ANDA) to FDA.[Footnote 25] The ANDA process does not
require manufacturers to conduct, or provide evidence from, the
clinical trials that are required of manufacturers of brand-name
drugs. Rather, generic drug manufacturers must demonstrate that a
generic drug is bioequivalent to an approved brand-name drug. As a
result, the ANDA process is less time consuming and less costly than
the NDA process.
The Hatch-Waxman Act contained additional provisions to facilitate the
entry of generics onto the market. First, the act accelerated the
approval process for generic drugs by allowing generic manufacturers
to collect data needed for an ANDA before the patent on the brand-name
drug expires.[Footnote 26] Second, the act encouraged generic drug
manufacturers to challenge a patent associated with an approved brand-
name drug prior to its expiration by making the first generic
manufacturer to do so eligible for a 180-day market exclusivity
period.[Footnote 27] For 180 days after first marketing the drug, the
generic manufacturer does not have competition from other generic
manufacturers.[Footnote 28] The Hatch-Waxman Act has been helpful in
encouraging the development of generic versions of brand-name drugs,
as evidenced by the fact that in the early 1980s, 35 percent of top-
selling drugs with expired patents had generic versions available, but
by the late 1990s almost all had generics available.[Footnote 29]
Once generic drugs are approved by FDA, providers and consumers may
substitute them for their bioequivalent, brand-name counterparts; we
refer to this process as generic substitution. They also may
substitute generic drugs for brand-name drugs that are not
bioequivalent, but are within the same therapeutic class, which we
refer to as therapeutic substitution. While generic substitution is
generally considered medically appropriate,[Footnote 30] there are a
number of circumstances under which therapeutic substitution may not
be appropriate. For example, some drugs in a therapeutic class either
may be more effective than others for certain individuals or may not
be safe for people with complicating health conditions. Taken
together, generic and therapeutic substitution make up the generic
utilization rate (that is, the share of all drugs dispensed that are
generic), which may be affected by a number of factors, including:
* State generic substitution laws: States are responsible for
regulating the practice of pharmacy. Consequently, there is variation
among state requirements with respect to dispensing generics. For
example, some states require pharmacists to practice generic
substitution, unless the prescribing physician indicates that only the
brand-name drug may be dispensed. Other states allow, but do not
require, pharmacists to substitute generic drugs if the prescriber
does not specify brand-name only. Additionally, some states require
pharmacists to notify or get consent from consumers prior to
substituting generic drugs, while others do not.[Footnote 31] In the
case of therapeutic substitution, a pharmacist cannot substitute
between drugs; rather a physician must make the decision to prescribe
a generic.
* Pharmacy benefit management: Federal programs and private health
insurance plans have implemented strategies to help encourage the use
of generic drugs by their beneficiaries or members. Their strategies
include tiered copayments, where generic drugs have a lower copayment
than brand-name drugs; step-therapy, where consumers are required to
try the most cost-effective drug in a therapeutic class first, usually
a generic; generic-only coverage; offering free samples of generic
medications; financial incentives for physicians and pharmacists to
choose generics; and educational efforts to describe the benefits of
using generic drugs, which may be targeted at both physicians and
consumers.
* Perceptions of generic drugs' safety and efficacy: Physicians,
pharmacists, and consumers may have perceptions about the safety and
efficacy of generic drugs compared to brand-name drugs, which in turn
affect what drugs they choose to use. These perceptions are based on a
number of factors, including prior experience, results of relevant
studies, or advertising. Negative perceptions of generic drugs may be
more common where questions have been raised about the medical
appropriateness of generic or therapeutic substitution. For example,
there is controversy within the health care community about whether
generic substitution is appropriate for drugs for which there are
relatively small differences between the therapeutic dose and doses
that could lead to serious treatment failure or serious adverse drug
reactions. These drugs are referred to as having a narrow therapeutic
index (NTI) and are commonly understood to include anti-epileptic
drugs, thyroid drugs, and immunosuppressant drugs.[Footnote 32]
While the overall generic utilization rate was 78 percent in 2010 for
drugs dispensed in retail settings and long-term care facilities, the
rate at which generic drugs were substituted for brand-name drugs when
a generic equivalent was available was 93 percent.[Footnote 33] Thus,
additional savings from generic drugs are likely to come mostly from
an increase in therapeutic substitution, in which a generic is
substituted for a brand-name drug that is not bioequivalent. Savings
could also come from an increase in the percentage of the prescription
drug market that is available for generic substitution, that is from
more brand-name drugs gaining generic counterparts. In 2010, 26
percent of drugs dispensed in retail settings and long-term care
facilities consisted of brand-name drugs that did not have generic
counterparts.[Footnote 34]
Research Used Varying Approaches to Estimate the Savings Associated
with Generic Drug Use:
Our review found that research used varying approaches to estimate the
savings associated with generic drug use in the United States. One
group of studies estimated the savings in reduced drug costs that have
accrued from the use of generics, while a second group of studies
estimated the potential to save more on drugs through greater generic
use. Additionally, we identified a third group of studies that
estimated the effect of using generic versions of certain types of
drugs on health care costs.
Cost Savings Accrued from the Use of Generic Drugs:
We identified a group of studies that estimated the savings in reduced
drug costs that have accrued from the use of generics. The estimates
of cost savings varied, in part because the studies ranged in scope.
For example, some looked only at generic substitution, while others
focused on both generic and therapeutic substitution. Additionally,
the period of observation varied among the studies as did the
population of interest. While we identified a series of studies that
examined savings to the U.S. health care system as a whole, most other
studies focused on savings accrued from the implementation of a
program to encourage generic drug use or for a specific population.
The studies also calculated savings in different ways. Methods
included estimating the difference between the total amount paid for
generic drugs over a specified time period with the amount that would
have been paid if brand-name drugs had been used instead and comparing
differences in drug costs with and without the implementation of a
program to encourage generic use. Examples of studies that looked at
cost savings accrued include the following:
* A series of studies conducted for GPhA by IMS Health estimated the
total savings generic substitution provided to the overall U.S. health
care system for the 12-year period 1999 through 2010.[Footnote 35] The
reports found that during this period, generic substitution has saved
the U.S. health care system more than $1 trillion. In 2010 alone,
generic substitution generated more than $157 billion in savings.
[Footnote 36] These reports are the most current and comprehensive
analyses of cost savings accrued from generic drugs.[Footnote 37] The
analyses estimated differences in the total amount paid for generic
and brand-name drugs for the U.S. retail and institutional
prescription drug market. In calculating savings, the price of brand-
name drugs before generic entry into the market was used. An IMS
official we interviewed explained that IMS used this approach because
generic entry can affect brand prices.[Footnote 38]
* A 2010 CBO study examined savings as a result of generic
substitution in the Medicare Part D Program.[Footnote 39] Using Part D
claims data, the study found that dispensing generic drugs rather than
their brand-name counterparts reduced total Part D prescription drug
costs in 2007 by about $33 billion.[Footnote 40] The study noted the
difficulty associated with establishing the exact share of savings
that accrued to the Part D program versus its enrollees. Thus, CBO
estimated the proportion of savings accrued to each as being the same
proportion as their total payments to Part D plans and pharmacies in
that year. As a result, CBO estimated that approximately 72 percent
($24 billion) of savings accrued to the Part D program and 28 percent
($9 billion) to enrollees. In contrast to the GPhA reports, CBO
calculated cost savings assuming that generic entry is not likely to
have a substantial effect on the price of the brand-name drug and used
the prices of brand drugs in 2007 in conducting its analysis. CBO
officials we interviewed explained that they made this assumption
because there is conflicting evidence as to the effect of generic
entry on brand-name drug prices.
* A third article looked at cost savings accrued from the
implementation of a program to promote increased use of generic drugs
in a large managed care organization.[Footnote 41] Using claims data,
the study compared those physicians who participated in the program in
2005 and 2006 to those who did not and found that the program produced
drug cost savings through an increase in both generic and therapeutic
substitution. After program expenses, the program saved the
organization $397,486 in 2005 and $453,545 in 2006[Footnote 42].:
* A fourth study looked at cost savings accrued from the
implementation of a policy to promote the use of a generic
antidepressant over its brand-name counterpart in a Department of
Veterans Affairs (VA) hospital.[Footnote 43] Using VA data and
estimating differences in the total amount paid for the generic and
brand-name versions of the drug, the study found that from March 2002-
August 2004, the policy resulted in a total of $2.5 million in savings.
Potential Cost Savings from Greater Generic Drug Use:
We identified a second group of studies that estimated the potential
to save more on drugs through greater use of generics. Similar to
research on cost savings accrued, while the research found that
additional savings opportunities exist, the extent of the savings
varied by study scope. Most of the studies identified focused on the
potential cost savings from increasing generic substitution within a
given population. However, studies also estimated the potential cost
savings from greater therapeutic substitution or policies to encourage
generic drug use, as well as the costs associated with delayed entry
of generic drugs into the marketplace. Articles in this group also
differed in population of interest and the number of drugs studied.
Studies generally calculated potential savings by estimating the
difference between the total amount paid for brand-name drugs over a
specified time period with the amount that would have been paid if
generic drugs had been used instead. Additionally, while most studies
assumed a 100 percent substitution rate in conducting these
calculations, others assumed varying levels of substitution. Studies
that used a 100 percent substitution rate may have overestimated
savings potential, as reaching this level of substitution is likely
unrealistic and, particularly in the case of therapeutic substitution,
not always medically appropriate. Examples of studies that looked at
potential cost savings include the following:
* One study estimated that potential national savings from increasing
generic substitution from about 61 percent to 100 percent would have
been approximately $9 billion for adults in 2000.[Footnote 44] The
estimate was based on patient-reported estimates of drug prices using
a nationally representative sample from the Medical Expenditures Panel
Survey Household Component and included all payer types.[Footnote 45]
* Another study estimated that Medicaid's potential cost savings from
increasing generic substitution from 81 percent to 100 percent for 20
popular brand drugs was $329 million in 2009.[Footnote 46] The study
was based on Medicaid drug utilization data and incorporated the price
impact of drug manufacturer rebates to state Medicaid programs into
its calculations.[Footnote 47]
* The 2010 CBO study, in addition to estimating cost savings accrued
in the Medicare Part D program, assessed the potential for additional
savings from generic and therapeutic substitution, and found that if
substitution rates had been 100 percent, about $900 million would have
been saved from generic substitution and $4 billion from therapeutic
substitution in 2007.[Footnote 48] Potential cost savings calculations
from therapeutic substitution were for seven therapeutic classes and
incorporated rebate data.[Footnote 49]
* An industry report conducted by Express Scripts, a pharmacy benefit
manager, also estimated the potential savings from increasing generic
and therapeutic substitution among its members and found it to be over
$20 billion in 2005; however the study did not separate the savings
associated with each type of substitution.[Footnote 50] The potential
savings estimate was for six therapeutic classes and used company
claims data from 48 states.[Footnote 51] The savings opportunity for
each of the 48 states was estimated by therapeutic class as the
difference in actual total costs given each state's 2005 generic
utilization rate and what costs would have been if the state were able
to reach the generic utilization targets for that class.[Footnote 52]
* Another study examined the effect of states' generic substitution
laws on Medicaid spending.[Footnote 53] The study estimated that for
one cholesterol-lowering drug, the program could have saved
approximately $20 million in the 15 months following patent expiration
if all states that had a generic substitution policy requiring patient
consent eliminated the policy. To calculate potential savings, the
study used 2006-2007 Medicaid drug utilization data and compared
actual generic savings between states that did not require patient
consent and those that did.
* A sixth study examined the cost to Medicaid of delayed generic drug
entry to market of three case study drugs.[Footnote 54] This study
used Medicaid drug utilization data and calculated that if generic
drugs had been available and fully substituted at their lowest cost
upon the expiration of patent protection, Medicaid could have saved
more than $1.5 billion from 2000 to 2004 for these three drugs.
[Footnote 55]
Effect of Using Generic Versions of Certain Types of Drugs on Health
Care Costs:
We identified a third group of studies that estimated the effect on
health care costs of using generic versions of certain types of drugs
where questions had generally been raised about whether substituting
generic drugs for brand-name drugs was medically appropriate; the
research found mixed results about whether generic drugs lowered
health care costs in these circumstances. Unlike the research
discussed above, which focused on savings on drugs only, this research
compared savings from the lower cost of generics to other health care
costs that might accrue from their use, such as increased
hospitalizations, emergency department visits, or physician visits.
These studies were generally limited to particular types of drugs
where the medical appropriateness of generic or therapeutic
substitution has been debated. Studies that looked at generic
substitution focused on NTI drugs, whereas studies that looked at
therapeutic substitution did not focus on NTI drugs. For example,
studies that looked at therapeutic substitution examined selective
serotonin reuptake inhibitors (SSRIs), which are currently among the
most widely prescribed antidepressants in the United States.[Footnote
56] Most studies used a regression analysis for the estimate to
account for the potential impact of confounding variables, such as
comorbidities on health care costs.[Footnote 57] In addition to drugs
studied, the articles varied by a number of factors, including period
of observation, health care costs measured, selection of confounding
variables, and whether patients initiated therapy with a generic drug
or switched from a brand drug to a generic drug midtreatment. Examples
of studies that looked at the effect of using generic versions of
certain types of drugs on health care costs include the following:
* One study examined claims data between 1996 and 2004 for renal
transplant patients in eight private health insurance plans to examine
the effect of generic substitution of an NTI immunosuppressant drug on
health care costs.[Footnote 58] The study found that total health care
costs 12 months after transplantation were higher for those initiating
therapy with the generic immunosuppressant drug at $36,482 versus the
brand version of the drug at $32,171. This study did not find a
difference in hospitalization or physician costs. Rather, the study
found that the main reason for the difference in health care costs was
the cost associated with needing higher doses of the generic drug or
additional immunosuppressants needed to maintain the transplanted
kidney in patients using the generic.
* A second study used claims data from 1998 for approximately 2,300
privately insured patients to determine the effect of generic
substitution of an NTI anticoagulant drug when a switch occurred
midtreatment.[Footnote 59] The study compared treatment costs
associated with using the brand and generic version of the drug and
found that, based on data from 90 days before and the 90 days after
the switch, the difference in total costs associated with the brand
and generic anticoagulant drug was $3,128 less per 100 patient years
for the generic.
* Another study used claims data from about 45 private health
insurance plans from 2003 to 2007 to compare health care costs over 6
months in patients using brand and generic SSRIs when therapeutic
substitution occurred midtreatment.[Footnote 60] The study found that,
on average, compared with patients who remained on brand-name drugs,
patients who switched to generic drugs experienced an increase of $881
in total health care costs. Among other factors leading to the
increased costs, patients who switched from brand-name drugs to
generic drugs had higher rates of hospitalizations and emergency
department visits than did patients who remained on the brand-name
drug.
* A fourth study reached a different conclusion about the effect of
using generic SSRIs, when patients began treatment with a generic
drug.[Footnote 61] This study used claims data from 2005 to 2007 and
compared health care costs for a 6-month period in patients in about
100 private health insurance plans. The study concluded that the total
health care costs of patients using generic antidepressants were
significantly lower than costs of patients using brand
antidepressants, with an average of $3,660 and $4,587 respectively.
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page of this report. Major contributors to this report were Robert
Copeland, Assistant Director; Kathryn Black; Laurie Pachter; and
Rachel Svoboda.
Sincerely yours,
Signed by:
John E. Dicken:
Director, Health Care:
[End of section]
Enclosure: Articles Identified through Literature Review:
Through a structured literature review GAO identified 30 articles that
included empirical analyses estimating the savings associated with
generic drug use. To conduct this review, GAO searched reference
databases using a combination of search terms,[Footnote 62] and
supplemented this information by searching government websites, such
as the Department of Health and Human Services' website, and websites
of national organizations, including those of trade groups, such as
the Generic Pharmaceutical Association, and nonprofits, such as the
Kaiser Family Foundation. Articles identified estimated the savings in
reduced drug costs that have accrued from the use of generics, the
potential to save more on drugs with greater generic use, and the
effect of using generic versions of certain types of drugs on health
care costs. Table 2 lists the 30 articles by study type.
Table 2: Articles Identified through Literature Review by Study Type:
Study type: Cost savings accrued;
Study reviewed: Congressional Budget Office, Effects of Using Generic
Drugs on Medicare's Prescription Drug Spending: A CBO Study
(Washington, D.C.: September 2010)[A,B].
Study reviewed: Dobscha, S.K., L.M. Winterbottom, and L.S. Snodgrass,
"Reducing Drug Costs at a Veterans Affairs Hospital by Increasing
Market-share of Generic Fluoxetine," Community Mental Health Journal,
vol. 43, no.1 (February 2007), 75-84[A].
Study reviewed: Generic Pharmaceutical Association, Savings: An
Economic Analysis of Generic Drug Usage in the U.S. (September
2011)[A].
Study reviewed: Generic Pharmaceutical Association, Savings Achieved
through the Use of Generic Pharmaceuticals, 2000-2009 (July 2010)[A].
Study reviewed: Generic Pharmaceutical Association, Economic Analysis:
Generic Pharmaceuticals 1999-2008--$734 Billion in Health Care Savings
(May 2009)[A].
Study reviewed: Hong, S.H., and N.F. Canterbury, "Evaluation of the
Cost-Saving Potential of a Generic Dispensing Incentive Program," Drug
Benefit Trends, vol. 16 (2004), 515-524.
Study reviewed: Joyce, G.F., J.J. Escarce, M.D. Solomon, and D.P.
Goldman, "Employer Drug Benefit Plans and Spending on Prescription
Drugs," Journal of the American Medical Association, vol. 288, no.14
(October 2002), 1733-1739.
Study reviewed: Liberman, J.N., and M.C. Roebuck, "Prescription Drug
Costs and the Generic Dispensing Ratio," Journal of Managed Care
Pharmacy, vol. 16, no. 7 (September 2010), 502-506.
Study reviewed: Scott, A.B., E.J. Culley, and J. O'Donnell, "Effects
of a Physician Office Generic Drug Sampling System on Generic
Dispensing Ratios and Drug Costs in a Large Managed Care
Organization," Journal of Managed Care Pharmacy, vol. 13, no. 5 (June
2007), 412-419[A].
Study reviewed: Sy, F.Z., H.M. Choe, D.M. Kennedy, C.J. Standiford,
D.M. Parsons, K.D. Bruhnsen, J.G. Stevenson, and S.J. Bernstein,
"Moving from A to Z: Successful Implementation of a Statin Switch
Program by a Large Physician Group," American Journal of Managed Care,
vol. 15, no. 4 (April 2009), 233-240.
Study type: Potential cost savings;
Study reviewed: Bian, B., C.M.L. Kelton, J.J. Guo, and P.R. Wigle,
"ACE Inhibitor and ARB Utilization and Expenditures in the Medicaid
Fee-For-Service Program From 1991 to 2008," Journal of Managed Care
Pharmacy, vol. 16, no. 9 (November/December 2010), 671-679.
Study reviewed: Brill, A., "Overspending on Multi-Source Drugs in
Medicaid," American Enterprise Institute for Public Policy Research
(March 2011)[A].
Study reviewed: Congressional Budget Office, Effects of Using Generic
Drugs on Medicare's Prescription Drug Spending: A CBO Study
(Washington, D.C.: September 2010).[A,B]
Study reviewed: Cox, E., A. Behm, and D. Mager, 2005 Generic Drug
Usage Report, a special report prepared at the request of Express
Scripts (2005)[A].
Study reviewed: Federal Trade Commission, Pay-for-Delay: How Drug
Company Pay-Offs Cost Consumers Billions. An FTC Staff Study
(Washington, D.C.: 2010).
Study reviewed: Fischer, M.A., and J. Avorn, "Economic Consequences of
Underuse of Generic Drugs: Evidence from Medicaid and Implications for
Prescription Drug Benefit Plans," Health Services Research, vol. 38,
no. 4 (August 2003), 1051-1064.
Study reviewed: Fischer, M.A., and J. Avorn, "Potential Savings from
Increased Use of Generic Drugs in the Elderly: What the Experience of
Medicaid and Other Insurance Programs Means for a Medicare Drug
Benefit," Pharmacoepidemiology and Drug Safety, vol. 13 (2004), 207-
214.
Study reviewed: Haas, J.S., K.A. Phillips, E.P. Gerstenberger, and
A.C. Seger, "Potential Savings from Substituting Generic Drugs for
Brand-Name Drugs: Medical Expenditure Panel Survey, 1997-2000," Annals
of Internal Medicine, vol. 142, no. 11 (June 2005), 891-897[A].
Study reviewed: Kesselheim, A.S., M.A. Fischer, and J. Avorn,
"Extensions of Intellectual Property Rights and Delayed Adoption of
Generic Drugs: Effects On Medicaid Spending," Health Affairs, vol. 25,
no.6 (November/December 2006), 1637-1647[A].
Study reviewed: Pharmaceutical Care Management Association,
Undermining Generic Drug Substitution: The Cost of Generic Carve-Out
Legislation (October 2008).
Study reviewed: Shrank, W.H., N.K. Choudhry, J. Agnew-Blais, A.D.
Federman, J.N. Liberman, J. Liu, A. S. Kesselheim, M.A. Brookhart, and
M.A. Fischer, "State Generic Substitution Laws Can Lower Drug Outlays
Under Medicaid," Health Affairs, vol. 29, no. 7 (July 2010), 1383-
1390[A].
Study reviewed: Shrank, W.H., N.K. Choudhry, J.N. Liberman, and T.A.
Brennan, "The Use of Generic Drugs in Prevention of Chronic Disease is
Far More Cost-Effective Than Thought, and May Save Money," Health
Affairs, vol. 30, no. 7 (July 2011), 1351-1357.
Study reviewed: Shrank, W.H., J.N. Liberman, M.A. Fischer, J. Avorn,
E. Kilabuk, A. Chang, A.S. Kesselheim, T.A. Brennan, and N.K.
Choudhry, "The Consequences of Requesting 'Dispense as Written',"
American Journal of Medicine, vol. 124, no. 4 (April 2011), 309-317.
Study reviewed: U.S. Department of Health and Human Services, Report
on Prescription Drug Importation (Washington, D.C.: December 2004).
Study type: Effect on health care costs;
Study reviewed: Billups, S.J., S.L. Plushner, K.L. Olson, T.J.
Koehler, and J. Kerzee, "Clinical and Economic Outcomes of Conversion
of Simvastatin to Lovastatin in a Group-Model Health Maintenance
Organization," Journal of Managed Care Pharmacy, vol.11, no. 8
(October 2005), 681-686.
Study reviewed: Helderman, J.H., N. Kang, A.P. Legorreta, and J.Y.
Chen, "Healthcare Costs in Renal Transplant Recipients Using Branded
versus Generic Ciclosporin," Applied Health Economics and Health
Policy, vol. 8, no. 1 (2010), 61-68[A].
Study reviewed: Katz, M., J. Scherger, S. Conard, L. Montejano, and S.
Chang, "Healthcare Costs Associated with Switching from Brand to
Generic Levothyroxine," American Health and Drug Benefits, vol. 3, no.
2 (March/April 2010), 127-134.
Study reviewed: LeLorier, J., M.S. Duh, P.E. Paradis, D. Latremouille-
Viau, P. Lefebvre, R. Manjunath, and O. Sheehy, "Economic Impact of
Generic Substitution of Lamotrigine: Projected Costs in the U.S. Using
Findings in a Canadian Setting," Current Medical Research and Opinion,
vol. 24, no. 4 (2008),1069-1081.
Study reviewed: Vlahiotis, A., S.T. Devine, J. Eichholz, and A.
Kautzner, "Discontinuation Rates and Health Care Costs in Adult
Patients Starting Generic versus Brand SSRI or SNRI Antidepressants in
Commercial Health Plans," Journal of Managed Care Pharmacy, vol. 17,
no. 2 (March 2011), 123-132[A].
Study reviewed: Witt, D.M., D.J. Tillman, C.M. Evans, T.V. Plotkin,
and M.A. Sadler, "Evaluation of the Clinical and Economic Impact of a
Brand Name-to-Generic Warfarin Sodium Conversion Program,"
Pharmacotherapy, vol. 23, no. 3 (2003), 360-368[A].
Study reviewed: Wu, E.Q., A.P. Yu, V. Lauzon, K. Ramakrishnan, M.
Marynchenko, R. Ben-Hamadi, S. Blum, and M.H. Erder, "Economic Impact
of Therapeutic Substitution of a Brand Selective Serotonin Reuptake
Inhibitor with an Alternative Generic Selective Serotonin Reuptake
Inhibitor in Patients with Major Depressive Disorder," Annals of
Pharmacotherapy, vol. 45 (April 2011), 441-451[A].
Source: GAO.
[A] Article discussed in the report.
[B] Article listed under cost savings accrued as well as potential
cost savings.
[End of table]
[End of section]
Footnotes:
[1] See IMS Institute for Healthcare Informatics, The Use of Medicines
in the United States: Review of 2010 (Parsippany, N.J.: April 2011).
For the purposes of this report, we use the terms prescription drugs
and drugs interchangeably.
[2] A brand-name drug is a drug marketed under a proprietary,
trademark-protected name. For the purposes of this report, we use the
terms generic drug and generic interchangeably. We also use the terms
brand-name drug and brand interchangeably.
[3] Patents are issued by the U.S. Patent and Trademark Office,
generally for a term of 20 years from the date of filing. A patent
grants its owner the right to exclude others from making, using,
selling, offering to sell, or importing the patented invention into
the United States. See 35 U.S.C. § 154(a)(2). In the case of drugs,
the patent protects the investment in the drug's development by giving
the manufacturer the sole right to sell the drug while the patent is
in effect.
[4] While research has shown that generic drug prices decrease
relative to the number of generic manufacturers that enter the market,
research is less clear regarding the overall effect of generic entry
on brand prices. While some studies have found that the price of a
brand-name drug increases following generic entry, others have found
that generic entry exerts a downward pressure on brand prices. In the
latter case, while brand-name prices typically increase over time,
with generic entry they do not increase as much as they would have
otherwise.
[5] Congressional Budget Office (CBO), Effects of Using Generic Drugs
on Medicare's Prescription Drug Spending (Washington, D.C.: September
2010).
[6] Pub. L. No. 98-417, 98 Stat. 1585 (1984).
[7] In addition to long-term care facilities, prescription drugs can
be dispensed in other institutional settings, such as hospitals and
clinics. Complete data on the 2010 generic utilization rate were not
publicly available for drugs dispensed in institutional settings.
However, drugs dispensed in retail settings and long-term care
facilities comprise approximately 76 percent of all prescription drug
spending in the United States, with drugs dispensed in retail settings
accounting for almost all of these drugs.
[8] Blockbuster drugs are drugs that generate at least $1 billon in
revenue per year for the company that manufactures them. From 2012
through 2015, 13 blockbuster drugs that account for about $78 billion
in drug sales are expected to come off patent, including Plavix (an
anti-platelet medication), Seroquel (an antipsychotic), and Singulair
(an asthma medication).
[9] Medicare is the federally financed health insurance program for
persons aged 65 or over, certain individuals with disabilities, and
individuals with end-stage renal disease. Medicare covers drugs
dispensed in hospital inpatient settings or skilled nursing facilities
through Part A and outpatient prescription drugs either through
Medicare Part B or Part D. Part B covers physician-administered drugs.
Part D, which went into effect in 2006, provides a voluntary
outpatient prescription drug benefit for the Medicare program.
[10] Third-party payers may use a variety of copayment structures. For
example, in a common three tier copayment structure, enrollees pay a
low copayment for generic drugs (the first tier), a higher one for
preferred brand-name drugs (the second tier), and the highest
copayment for nonpreferred brand-name drugs (the third tier). A
therapeutic class is defined as a group of drugs that are similar in
chemical structure, pharmacological effect, or clinical use.
[11] For the purposes of this report, we use the terms articles,
reports, and studies interchangeably.
[12] The databases we searched included those with a medical or
economic focus as well as those including articles across multiple
disciplines. They were: MEDLINE, EMBASE, EMCare, EconLit, NTIS,
SciSearch, and Social SciSearch. While we restricted our search to
articles published on or between January 2000 and October 24, 2011,
some articles identified were based on data prior to this time period.
[13] Examples of such articles are those that discussed pharmacy
benefit design changes to encourage generic use, such as the
initiation of a three tier copayment structure. In these cases, the
articles were excluded because they did not distinguish whether cost
savings estimates resulted from generic drug use or other factors,
such as the use of lower-cost brand-name drugs.
[14] Biologics are products, such as vaccines, derived from living
sources, such as humans, animals, and microorganisms. See 42 U.S.C. §
262(i). Biosimilars--or follow-on versions of biologics--are not
subject to the Hatch-Waxman Act, and there has historically been
limited market penetration of these products. In order to encourage a
market for biosimilars, the Patient Protection and Affordable Care Act
(PPACA) established a pathway for approval of biosimilars analogous to
the Hatch-Waxman Act, and the Food and Drug Administration is
currently developing regulations to implement the provisions. See Pub.
L. No. 111-148, § 7002, 124 Stat. 119, 804-21 (2010).
[15] IMS Health is an international company that supplies the
pharmaceutical and health care industries with market information.
[16] Active ingredients include any component of a drug that is
intended to provide pharmacological activity or other direct effect in
the diagnosis, cure, mitigation, treatment, or prevention of disease.
See 21 C.F.R. § 210.3(b)(7).
[17] Consumers' out-of-pocket costs generally include direct spending
by consumers for drugs not covered by third-party payers and cost-
sharing, including copayments and deductibles, for drugs covered by
these payers. For the purposes of this report, out-of-pocket costs do
not include consumers' premium payments for health insurance plans.
[18] Data on prescription drug spending by payer type were not
publicly available for drugs dispensed in institutional settings.
[19] Medicaid is a joint federal-state program that finances health
care for certain categories of low-income individuals. Medicaid
programs vary from state to state. Federal spending on prescription
drugs includes the federal share of the cost of prescription drugs for
Medicaid beneficiaries.
[20] For example, PPACA requires that uninsured individuals obtain
health insurance coverage. Specifically, beginning in January 2014,
most individuals must maintain coverage for themselves and their
dependents, which includes employer-sponsored health plans, individual
plans, and government-sponsored plans. Pub. L. No. 111-148, §§
1501(b), 10106(b), 124 Stat. 119, 244-49, 909-10 (2010), as amended by
the Health Care and Education Reconciliation Act of 2010, Pub. L. No.
111-152, §§ 1002, 1004, 124 Stat. 1029, 1032-34 (2010) (to be codified
at 26 U.S.C. § 5000A).
[21] See Office of the Assistant Secretary for Planning and
Evaluation, U.S. Department of Health and Human Services, Expanding
the Use of Generic Drugs (Washington, D.C.: Dec. 1, 2010).
[22] A new drug is a new chemical formula or an approved drug
prescribed for use in a new way.
[23] See 21 U.S.C. § 355(b). The entity that submits an application to
market a drug is referred to as a sponsor. We use manufacturer here
because the sponsor of an application is usually a manufacturer.
[24] The Hatch-Waxman Act also made changes for brand-name drugs, for
example, by establishing patent-term extensions to encourage drug
manufacturers to invest in research and development. Because
manufacturers of such drugs apply for and are granted patents from the
Patent and Trademark Office before they seek approval from FDA, part
of their time under patent is spent conducting the clinical trials
necessary for FDA approval and going through the FDA approval process--
which combined could take about 10-15 years of the 20-year patent
term. The patent extensions were intended to offset part of the patent
term that elapsed prior to the drug being marketed.
[25] See 21 U.S.C. § 355(j).
[26] While the Hatch-Waxman Act accelerated the generic drug approval
process, FDA's ability to review ANDAs in a timely fashion may delay
generic drugs' entry to the market. We have previously examined FDA's
review of ANDAs, and found that from 2004 to 2008, FDA increased the
number of ANDAs it reviewed by 42 percent; however over the same
period, FDA also received a greater number of applications each year
than it was able to review, resulting in 1,441 pending ANDAs in 2008--
a 123 percent increase since 2004. See GAO, Food and Drug
Administration: FDA Faces Challenges Meeting Its Growing Medical
Product Responsibilities and Should Develop Complete Estimates of Its
Resource Needs, [hyperlink, http://www.gao.gov/products/GAO-09-581]
(Washington, D.C.: June 19, 2009). By the end of 2011, FDA reported
that it had a backlog of about 2,500 ANDAs.
[27] One example of a patent challenge is when a generic drug
manufacturer asserts that the brand-name patent is invalid. For
example, a generic manufacturer may argue that a patent is invalid
because the patent was duplicative and therefore improperly granted.
When a patent is challenged, the brand-name manufacturer has the right
to bring the generic manufacturer to court where the challenge is
decided through either a court decision or a settlement; if the brand-
name manufacturer does not bring a lawsuit, the generic manufacturer
may immediately begin marketing the drug after receiving FDA approval.
The Federal Trade Commission has alleged that there have been
anticompetitive patent agreements between brand-name and generic drug
manufacturers. In particular, it has raised issue with "pay-for-delay"
agreements in which a brand-name manufacturer agrees to pay a
potential generic competitor to delay marketing the generic drug.
[28] Multiple generic manufacturers may qualify for the 180-day market
exclusivity if several ANDA applicants file a substantially complete
application on the same day.
[29] CBO, How Increased Competition from Generic Drugs has Affected
Prices and Returns in the Pharmaceutical Industry (Washington, D.C.:
July 1998).
[30] While rare, there are circumstances in which consumers may
medically require the brand-name version of a drug, such as if they
are allergic to an inactive ingredient found in the generic version.
[31] See Office of the Assistant Secretary for Planning and
Evaluation, 2010 (citing Epilepsy.com/Professionals. State Law or
Statutes Governing Generic Substitution by Pharmacists, Apr. 25, 2007,
at [hyperlink,
http://professionals.epilepsy.com/page/statutes_by_pharmacists.html].)
[32] FDA does not currently designate specific drugs as NTI drugs and,
in approving ANDAs, FDA uses the same bioequivalence standards for
drugs with a wide therapeutic index and NTI drugs. FDA has
historically stated that different standards were not needed; however,
the agency has recently decided to revisit this issue. See, FDA,
Summary Minutes of the Advisory Committee for Pharmaceutical Science
and Clinical Pharmacology (Silver Spring, Md.: July 26, 2011).
[33] IMS Institute for Healthcare Informatics, 2011.
[34] IMS Institute for Healthcare Informatics, 2011.
[35] GPhA, Savings: An Economic Analysis of Generic Drug Usage in the
U.S. (September 2011); GPhA, Savings Achieved through the Use of
Generic Pharmaceuticals, 2000-2009 (July 2010); GPhA, Economic
Analysis: Generic Pharmaceuticals 1999-2008--$734 Billion in Health
Care Savings (May 2009).
[36] GPhA, 2011.
[37] A previous analysis of cost savings accrued from generic drugs to
the overall U.S. health care system was conducted by CBO, but was
based on data from 1994 when fewer generic drugs were used. The CBO
report, entitled "How Increased Competition from Generic Drugs Has
Affected Prices and Returns in the Pharmaceutical Industry," used data
from approximately 70 percent of prescription sales through U.S.
retail pharmacies and estimated that generic substitution saved
approximately $8 billion to $10 billion.
[38] The IMS official explained that they used the brand-name price
prior to generic entry, as sometimes brand manufacturers increase
their prices when generics enter the market. One explanation for this
practice is that if some, less price-sensitive consumers perceive the
quality of brand-name drugs to be better than their generic
competitors, they will purchase the brand-name drugs even at higher
prices. Thus, the official stated that using brand prices before
generic entry provides a more reliable way of estimating the savings
associated with generics, because the analysis is not affected by
these price changes.
[39] CBO, 2010.
[40] Health care claims generally refer to charges submitted by
physicians, hospitals, pharmacies, or other providers for the sale of
drugs, among other services, to private health insurance plans or
public programs. In the case of Medicare Part D, private health
insurance plans typically contract with the Centers for Medicare and
Medicaid Services to provide coverage for beneficiaries and submit
claims to the Part D program.
[41] A managed care organization is a health care organization that
emphasizes standardized treatment protocols, case management, and
controlled access to care.
[42] A.B. Scott, E.J. Culley, and J. O'Donnel, "Effects of a Physician
Office Generic Drug Sampling System on Generic Dispensing Ratios and
Drug Costs in a Large Managed Care Organization," Journal of Managed
Care Pharmacy, vol. 13, no. 5 (2007), 412-419.
[43] S.K. Dobscha, L.M. Winterbottom, and L.S. Snodgrass, "Reducing
Drug Costs at a Veterans Affairs Hospital by Increasing Market-share
of Generic Fluoxetine," Community Mental Health Journal, vol. 43, no.
1 (February 2007), 75-84.
[44] J.S. Haas, K.A. Phillips, E.P. Gerstenberger, and A.C. Seger,
"Potential Savings from Substituting Generic Drugs for Brand-Name
Drugs: Medical Expenditure Panel Survey, 1997-2000," Annals of
Internal Medicine, vol. 142, no. 11 (June 2005), 891-897.
[45] The Medical Expenditure Panel Survey Household Component collects
data, including prescriptions filled, from individual households and
their members and is supplemented by data from their medical providers.
[46] A. Brill, "Overspending on Multi-Source Drugs in Medicaid,"
American Enterprise Institute for Public Policy Research (March 2011).
[47] In general, in order to have their drugs covered by Medicaid,
manufacturers are required to pay states rebates, calculated based on
a statutorily defined formula, on outpatient drugs that are dispensed
to the states' Medicaid patients. As of January 1, 2010, PPACA
increased the rebate percentage for this formula from 15.1 percent to
23.1 percent of the average manufacturer price (AMP) for most brand-
name drugs and from 11 percent to 13 percent of the AMP for generic
drugs. Pub. L. No. 111-148, § 2501, 124 Stat. 119, 306-10 (2010)
(codified at 42 U.S.C. § 1396r-8). However, as this study was based on
2009 data, the rebate percentages in place prior to PPACA applied.
While this study incorporated the price impact of drug manufacturer
rebates on state Medicaid programs in its calculations, some studies
that looked at savings to the Medicaid program did not.
[48] CBO, 2010. Actual generic and therapeutic substitution rates for
2007 were not included in the report.
[49] The seven therapeutic classes that CBO examined accounted for
only 17 percent of total prescription drug costs in 2007. Thus,
potential savings from therapeutic substitution could have been higher
to the extent that other classes also present opportunities for
therapeutic substitution. However, the authors also noted that savings
could have been lower, because in many cases it would not have been
medically appropriate to switch a prescription. The authors took
rebate data into account only in calculating savings from therapeutic
substitution, stating that outside of the Medicaid program, rebates
are generally only given for brand-name drugs that do have generic
counterparts.
[50] E. Cox, A. Behnm, and D. Mager, "2005 Generic Drug Usage Report,"
Express Scripts (2005). Pharmacy benefit managers administer the
prescription drug benefits of health insurance plans on behalf of plan
sponsors. Their services can include negotiating with manufacturers to
lower the price that plans pay for prescription drugs and developing
and managing preferred drug lists. Express Scripts is one of the
largest pharmacy benefit managers in the United States with at least 3
million members at the time this study was conducted.
[51] The six therapeutic classes represented 40 percent of all drug
spending for the study population.
[52] The generic utilization targets were estimated by Express
Scripts' clinical pharmacists by evaluating the clinical efficacy and
market dynamics of branded and generic medications across the six
therapeutic classes selected for the study. Among the six therapeutic
classes, generic utilization targets in 2005 ranged from 70 percent
for anti-hyperlipidemics to 95 percent for gastrointestinals, calcium
channel blockers, and non-steroidal anti-inflammatory drugs.
[53] W.H. Shrank, N.K. Choudhry, J. Agnew-Blais, A.D. Federman, J.N.
Liberman, J. Liu, A.S. Kesselheim, M.A. Brookhart, and M.A. Fischer,
"State Generic Substitution Laws Can Lower Drug Outlays Under
Medicaid," Health Affairs, vol. 29, no.7 (July 2010), 1383-1390.
[54] A.S. Kesselheim, M.A. Fischer, and J. Avorn, "Extensions of
Intellectual Property Rights and Delayed Adoption of Generic Drugs:
Effects on Medicaid Spending," Health Affairs, vol. 25, no.6
(November/December 2006), 1637-1647.
[55] The study noted that generic drugs can be delayed from reaching
the U.S. market if, for example, manufacturers obtain patents on
changes to the existing brand-name drug, including modified forms of
the same drug, new delivery systems for the drug, and new uses of the
drug.
[56] SSRIs are not NTI drugs. However, concerns have been raised about
therapeutic substitution of these drugs due to some studies suggesting
that there are therapeutic differences between SSRIs.
[57] In general, regression analyses measure the relationship between
independent variables, which in this case includes drug type, and the
dependent variable, which in this case is health care costs. In
measuring the relationship between an independent variable and a
dependent variable, regression analyses account for other variables
that could affect the relationship between the two, also known as
confounding variables. Comorbidities are the presence of one or more
diseases or conditions in addition to a primary disease or condition.
[58] J.H. Helderman, N. Kang, A.P. Legorreta, and J.Y. Chen,
"Healthcare Costs in Renal Transplant Recipients Using Branded versus
Generic Ciclosporin," Applied Health Economics and Health Policy, vol.
8, no. 1 (2010), 61-68.
[59] D.M. Witt, D.J. Tillman, C.M. Evans, T.V. Plotkin, and M.A.
Sadler, "Evaluation of the Clinical and Economic Impact of a Brand
Name-to-Generic Warfarin Sodium Conversion Program," Pharmacotherapy,
vol. 23, no. 3 (2003), 360-368.
[60] E.Q. Wu, A.P. Yu, V. Lauzon, K. Ramakrishnan, M. Marynchenko, R.
Ben-Hamadi, S. Blum, and M.H. Erder, "Economic Impact of Therapeutic
Substitution of a Brand Selective Serotonin Reuptake Inhibitor with an
Alternative Generic Selective Serotonin Reuptake Inhibitor in Patients
with Major Depressive Disorder," The Annals of Pharmacotherapy, vol.
45 (April 2011), 441-451.
[61] A. Vlahiotis, S.T. Devine, J. Eichholz, and A. Kautzner,
"Discontinuation Rates and Health Care Costs in Adult Patients
Starting Generic Versus Brand SSRI or SNRI Antidepressants in
Commercial Health Plans," Journal of Managed Care Pharmacy, vol. 17,
no. 2 (March 2011), 123-132.
[62] We searched the reference databases for article titles,
descriptors, and identifiers involving all of the following
combinations: "generic drug," "generic pharmaceutical," "generic
prescription," "generic medication," "generic counterpart," "generic
formulation," "generic version," " multisource drug," "multisource
pharmaceutical," "multisource prescription," "multisource medication;"
and "save," "savings," "spend," "cost," "expenditure," "expense,"
"outlay," "economic," "fiscal," "financial," "monetary." We then
searched article abstracts using these terms as well as the following
modifying terms: "reduce," "decrease," "lessen," "lower," "minimize,"
"curtail," "moderate," "increase," "raise," "rise," "maximize," "add,"
"elevate," "heighten," "steady," "level," "plateau," "decline,"
"surge," "swell," "impact," "effect," "affect."
[End of section]
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